What's the difference between "advice" and "guidance" when crowdfunding property investments
In a nutshell
We live in a world where there are tens of thousands of different financial products on offer to us. These products are constantly being marketed on the Tube, advertised on television and publicised by being pushed through your letterbox. However, sifting through which ones you may be interested in and which ones you want to ignore can be difficult.
It may certainly be helpful to get professional financial advice, particularly if you have limited experience of dealing with finances or you're confused about making important financial decisions.
The specific type of financial advice you need will depend on factors like your stage of life, how much money you have to invest, and the general financial goals you are trying to achieve.
So, if you're interested in investing in Property Crowdfunding on a platform, but you feel as though you need to talk through some points before committing your capital, who are the best people to turn to, and more importantly, what services do they provide?
How many modes of financial consultation are there?
Professional financial advice can come in many different modes of consultation, from a member of staff at your High Street bank, investment representatives and stockbrokers, insurance advisers, professional investment advisers and financial planners.
All these different professional advisers can help you with numerous differing types of financial decisions. Common topics of financial advice can range from planning for your retirement, purchasing a home, guidance about what to do with a redundancy payment or an inheritance, taking out a mortgage, managing debt or investing money into property.
However, if you're seeking assistance when it comes to managing your finances appropriately, it's important to know the key differences between "financial advice" and "financial guidance".
What exactly is the difference between financial advice and financial guidance?
In order to seek out the help you need, you should first clarify what separates financial advice from financial guidance and decide which better fits in with your needs.
Financial advice informs you which specific product would best suit your financial requirements, whereas financial guidance provides you with information about all the various options available to you, but will not recommend any particular option over another.
Guidance can help you understand the different investment options available before you decide for yourself how to invest your money. Some people use it to narrow down their options before seeking advice.
For example, if you have inherited a significant sum of money and you are thinking of investing it, someone giving financial guidance would tell you what your investment options are in broad terms. They may tell you about the advantages and disadvantages of different types of ISAs and distinct investment instruments.
However, it will not include recommendations about specific products offered by named companies or what option might suit you best.
Alternatively, a financial adviser would inform you of specific investment types and particular categories of ISAs offered by various companies and they may recommend one that is most appropriate for your personal circumstances.
Any organisation can offer financial guidance and public bodies like the Pensions Advisory Service or the Money Advice Service will offer free, independent and impartial financial information without selling any specific financial products.
Importantly, financial guidance services are not regulated by the Financial Conduct Authority (FCA), so this means that if things go wrong with your financial decisions, you may not be able to complain to the Financial Ombudsman Service or the Financial Services Compensation Scheme (FSCS).
Conversely, FCA regulated financial advisers are liable for the accuracy and quality of the financial recommendations they have provided to you. If you have a complaint, you can raise it to the financial advisers who first gave the advice, then to the Financial Ombudsman Service who will decide on an outcome in a court of arbitration.
How does the FCA distinguish between advice and guidance?
In case anyone who wishes to invest in Property Crowdfunding is still unclear about the differences between guidance and advice, the FCA provides a clear and simple table detailing the distinctions.
What will the service provide?
It will recommend what you should do, for example, to buy or sell.
The recommendation will be about a specific investment, for example shares in XYZ plc or ABC's Low Risk UK Shares Fund.
The recommendation must be suitable for you, for example, for your personal financial situation and investment goals.
It will not tell you what to do or which products to buy. The information provided will help you to identify your options.
The guidance might include information about different types of investments or set out general principles for you to consider before you decide what to invest your money in.
Who provides the service?
Advice on products can only be offered by FCA regulated firms (you can check which firms are regulated by us on the Financial Services Register).
Anyone can provide guidance. Some organisations that provide guidance are regulated by the FCA.
Will you have to pay for the service?
You will normally pay a fee for advice.
You should be told about any fees before you are given advice.
Guidance is normally free.
Firms that are regulated by the FCA should tell you about any fees before they give you any guidance.
What are providers of the service responsible for?
Advisers are responsible and liable for the accuracy, quality and suitability of the recommendations they make.
Guidance providers are responsible for the accuracy and quality of the information they provide.
Complaints about the service and access to the Financial Ombudsman Service
If you are dissatisfied with the advice, you should complain to the firm that gave you the advice in the first instance.
If you are not happy with the firm's response, they reject your complaint, or you do not hear from them within 8 weeks you may be able to refer your complaint to the Financial Ombudsman Service.
The Financial Ombudsman Service is a free, independent service for settling disputes between financial services firms and their customers. It has power to award redress (often known as compensation).
If you are dissatisfied with the service you have received you should complain to the organisation that gave you the guidance in the first instance.
If the organisation is regulated by the FCA and you are not happy with the firm's response, they reject your complaint, or you do not hear from them within 8 weeks you may be able to refer your complaint to the Financial Ombudsman Service.
If the organisation is not regulated by the FCA, you will probably not be able to refer your complaint to the Financial Ombudsman Service. But you may have other options and may want to consider seeking independent legal advice.
Compensation if the provider has stopped trading or has gone into administration and you have a legal claim against them
If you have a legal claim against the firm that gave you advice and it stops trading, you may be able to obtain compensation from the Financial Services Compensation Scheme. This will depend on your legal claim satisfying the requirements of the compensation scheme.
If you have a legal claim against an FCA-regulated firm that gave you guidance and it stops trading, you may be able to claim compensation from the Financial Services Compensation Scheme. This will depend on your legal claim satisfying the requirements of the compensation scheme.
If the organisation that gave you guidance is not regulated by the FCA, you cannot claim compensation from the Financial Services Compensation Scheme, but may wish to seek independent legal advice.
Source: FCA - Understanding "advice" and "guidance" on investments
Independent and restricted advisers
Taking this into slightly more detail, the services that financial advisers provide can generally be split into two different types.
Independent financial advisers (IFAs) give unbiased advice about a whole range of financial products from many different companies available.
However, a restricted adviser may only specialise in one area. They might only offer advice on pensions or singular products offered by a limited number of companies.
All IFAs must be registered with the FCA. This will ensure that they adhere to the financial standards set and as a result you'll receive more protection if you're not happy with the service provided. This may mean that you are empowered to make a formal complaint to the Financial Services Ombudsman, and could potentially claim compensation.
As a rule of thumb, it's better to get independent financial advice from an IFA so that you can analyse the widest range of products available.
Making the right choice
Choosing a financial adviser might seem daunting but if you need help with a financial decision or remain uncertain after your personal research, it's worth persevering. A good adviser can save you a significant amount of money and a lot of worry.
Evidently, deciding to invest your money into property development projects via a Property Crowdfunding platform is a big decision as Alternative Finance is risky. There's a chance you could lose all the capital you invest, and past results do not guarantee future success.
If you're not one hundred percent confident that registering on a Property Crowdfunding platform is for you, it may be worth considering speaking to a professional, simply to establish a full understanding of the intricacies involved in Alternative Finance.
Overall, if you do receive advice, make sure it's right for you. Any financial adviser worth their salt will provide you with advice that's affordable to you whilst also taking on board your long-term financial goals and aspirations, and most importantly, bearing in mind your appetite for risk.
If an adviser ignores these fundamental points and continues to push a product that's not right for you, go elsewhere as it's likely he or she does not have your best interests at heart.
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